There are times when it’s our gut instinct to hit the panic button and ‘abandon ship’.

But rarely is that the best course of action.

When businesses face cash flow problems, some landlords or property managers might panic, immediately escalate to terminating the lease, or increase pressure on them to pay their rent.

However, working with tenants to find mutually agreeable solutions can be more beneficial in the long run. In this blog post, we will explore why landlords should consider working with tenants through cash flow problems, including the high cost of vacant properties, understanding the root causes, and how landlords can help.

The high cost of vacant properties

The problem with resorting to terminating the lease is that the aftermath isn’t considered enough. It might seem like the grass will be greener, but when the costs of a vacant property start piling up, suddenly, things don’t look much better than they were before.

A vacant property means lost rental income. It means all the outgoings are now the responsibility of the landlord. It means paying for advertising and taking the time to secure a new tenant. As well as funding any lease incentives which would most likely be required for securing a new tenant for the premises.

What initially looks like a cost-saving initiative ends up being more costly, time-consuming, and extremely stressful waiting game for the landlord.

Understanding the root causes of tenant cash flow problems

It’s clear that terminating the lease could actually be more harmful than helpful. However, to be helpful, it’s important to understand your tenant’s position.

This requires clear and empathetic communication and active listening from the property manager. Tenants may face cash flow problems for various reasons, such as changes in their business operations, stock delays, inability to find staff, economic downturns, unexpected expenses, or temporary setbacks. By understanding the root causes, landlords can better assess the situation and explore possible solutions. The root causes which we are referring to are typically temporary in nature.

How landlords can help

Landlords have an opportunity to be proactive and provide assistance to tenants facing temporary cash flow problems. Here are some practical solutions that landlords can consider:

• Flexible Payment Plans: Landlords can offer tenants flexible payment plans that accommodate their financial situation, such as spreading out rent payments over a longer period or deferring a portion of the rent to a later date. All of which should be agreed in a legal letter, signed by all parties involved. If the tenant doesn’t adhere to the outlined plan then the landlord should reserve the right to go back to the lease for further actions.
• Renegotiating Lease Terms: Landlords can renegotiate lease terms, such as exploring reassignments, working with the tenant in subletting a portion of premises or deferring rent reviews.
• Temporary Rent Reductions: Landlords can consider offering temporary rent reductions to help tenants overcome short-term financial challenges.

These solutions can be a win-win situation, as it helps tenants stay in the property and continue their operations while maintaining a stable rental income for the landlord. By working together, landlords and tenants can weather temporary financial challenges and maintain a healthy business relationship.

Providing support and resources

In addition to offering flexible payment plans and renegotiating lease terms, landlords can also provide support and resources to tenants.

This can include connecting tenants with financial advisors or business consultants, offering guidance on cost-saving measures, providing access to resources such as networking opportunities, or even something as small as helping them improve their signage or marketing strategy. If, as a landlord, you have anything in your toolbox that could improve the chances of their business’ recovery, then it’s in everyone’s best interest for you to offer those resources to your tenants.

Conclusion

When faced with tenants experiencing temporary cash flow problems, it’s crucial for landlords and property managers to take a proactive and empathetic approach instead of resorting to terminating the lease.

Termination of a lease can have long-term negative consequences, including high vacant properties cost and strained landlord-tenant relationships.

Inactivity in a building can lead to issues such as increased maintenance costs and the potential deterioration of the property. Buildings are inherently designed to be tenanted, and leaving them vacant can result in detrimental effects on their overall condition and financial performance.

Landlords can navigate these challenges by understanding the root causes of financial challenges, offering practical solutions, providing support and resources, and maintaining open communication.

However, managing tenants facing cash flow problems requires expertise and experience.

Just as much as your tenant needs your support, you need support from your property manager.

Property managers need to be dynamic enough and provide the right expertise to help mitigate complex situations like these, which is harder to achieve when trying to self-manage a property.

Azure Property can provide invaluable support, guidance, and resources to help landlords navigate complex situations, protect their investments, and ensure the success of your commercial properties.

Contact us today to learn how our dynamic property managers can support you in managing tenants facing cash flow problems.